Reuters: Financial Services and Real Estate: Grains Week Ahead-Nerves over crop weather, global economy

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Grains Week Ahead-Nerves over crop weather, global economy Jun 3rd 2012, 14:00 Sun Jun 3, 2012 10:00am EDT * Crop weather at center stage * Speculators may seek safe havens as global growth slows * Surging dollar a foil to higher grain prices * Fall in prices may spur export demand By K.T. Arasu CHICAGO, June 3 (Reuters) - U.S. crop weather and slowing global economic growth will vie for the attention of grains markets this week as concerns over a lack of rain escalate and financial investors reassess their risk strategy in the wake of rising unemployment in the United States. The global economic picture was already bleak due to the mounting euro zone debt crisis and a slowdown in China, the world's largest commodities importer. But the picture worsened when job growth in the United States slowed sharply in May. The U.S. data on Friday also showed unemployment unexpectedly rising for the first time in almost a year, to 8.2 percent. That led a sell-off across a broad range of financial markets, including corn and soybeans. But those crop markets -- as reflected by front-month contracts -- pared losses by the end of the trading day, aided by uncertainty over the weather in the U.S. grain belt. This year's corn and soybean crops have been developing faster than usual due to early planting and need adequate moisture to keep their yield potential intact. Rains are needed in the Lower Mississippi Delta, from Missouri to Mississippi and Kentucky as the corn crop edges toward pollination -- when yields are set -- that is to come two to three week earlier this year. "The negative reports today hit us fairly hard but the markets were able to recover," said grains analyst Shawn McCambridge of Jefferies Bache in Chicago at mid-morning on Friday when corn and soybeans had rebounded from losses. "The comeback is fundamentally orientated. Positions of money managers have been greatly reduced in the past few weeks. Heavy liquidation appears to have run its course," he said. CORN, SOYBEANS TUMBLE IN MAY Corn futures tumbled 16 percent in May to end at $5.55-1/4 per bushel as financial investors and others bailed out of the market amid prospects for a record large crop totalling 147.9 billion bushels, on a yield of 166 bushels per acre. CBOT soybean futures fell 11 percent to end at $13.76, weighed by weak demand and as speculators cut their positions. Wheat futures fell just 2 percent amid concerns over dry weather in the United States and in exporting countries like Russia and France. "We now need to prove that it can be done," said McCambridge, referring to the USDA's forecast for a record corn crop. "There is a (weather) threat there." Meteorologist Joel Widenor of Commodity World Group said the 6 to 10 day forecast starting Friday showed there could be half to 1-1/2 inches of rain during that period but much of the rains were headed for the Lower Mississippi Delta area. "The focus is going to be on the southern and western belt. Most of Illinois, Indiana, Ohio, Wisconsin will have below normal rains," he said, adding that the crop in the Midwest is not at risk since pollination will only start in late June. The sharp declines in prices last month and escalating concerns over global growth have sparked some talk that grains and other commodities were set for a sell-off like in 2008 during the financial crisis triggered by the housing bubble. WILL THERE BE A QE3? Some investors are growing more concerned that the United States could enter a double-dip recession, and expect the Federal Reserve to launch another bond-buying exercise in a bid to revive the flagging U.S. economy. The Fed's two earlier quantitative easing (QE) programs helped to boost commodity prices on concerns that the bond-buying exercise could fuel inflation. "It looks like it is almost necessary if they are going to fix the economy. It is necessary but whether they are going to do it is another thing," said grains analyst Mark Kinoff, president of Ceres Hedge in Chicago. Kinoff was expecting losses in U.S. grains to accelerate in the coming weeks, adding that there was "a little bit more downside." "It's got another one-third of the way down." "After a day like today (Friday), come Monday we'll see a little bit of panic," he said, adding that forecasts for a record corn crop would continue to weigh on the market. More pressure was expected from the strengthening dollar, which has become a safe haven investment for money managers watching the euro debt crisis escalate over the past two years. A stronger dollar has dampened demand for U.S. exports. The dollar index, a measure of the greenback's value against six major currencies, rose on Friday to its highest level in 21 months. In contrast, the Thomson Reuters Jefferies CRB commodities index tumbled to a 21-month low. The dollar has an inverse relationship with grains as the global commodities trade is priced in the greenback, and any rise in the dollar translate to higher costs for importers. U.S. government data on Friday showed net weekly export sales of corn from the United States fell to the lowest in 9 weeks, soybeans were the lowest in 4 months while sales of wheat fell to the lowest in 5 months. Traders will be on watch for signs of any pick up in export demand following the sharp decline in prices last month, especially if China shows interest in U.S. corn as prices are around levels when the country last made big purchases. Link this Share this Digg this Email Reprints

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